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That’s not it

One of the areas where the people who identify as the political left and the political right seem genuinely conflicted is their view of the government stance on net zero.  While the right point to government hypocrisy – e.g., flying off to elitist conferences while lecturing the little people on carbon footprints – and the many examples of eco-austerity being imposed on ordinary people across Europe in the name of a green new deal which favours corporate interests, the left complains that government has abandoned its commitment to net zero and is engaged in a dash for oil and gas.  Which is it?  Well, at face value at least, it would appear to be both.  That is, government is still legally committed to phasing out gas cooking and heating, along with ICE cars and a large part of domestic farming in the name of saving the climate (which, of course, it won’t).  But it is also doling out drilling licences to corporations ostensibly wanting to unlock new “North Sea” oil and gas deposits.

It should go without saying that the recipients of the new drilling permits just happen to be friends of, and donors to, the Tory Party… it was ever thus.  With the allegation from those who identify as the left that this is evidence of a government which will readily sacrifice our children’s future in exchange for a pocket full of grubby lucre.  Those on the right say nothing about this because, hey, who doesn’t like kleptocratic grift?

There are, however, several inconvenient truths behind the headlines.  The first concerns the location of the oil and gas deposits.  According to the Encyclopaedia Britannica the North Sea is:

[The] shallow, northeastern arm of the Atlantic Ocean, located between the British Isles and the mainland of northwestern Europe and covering an area of 220,000 square miles (570,000 square km).  The sea is bordered by the island of Great Britain to the southwest and west, the Orkney and Shetland islands to the northwest, Norway to the northeast, Denmark to the east, Germany and the Netherlands to the southeast, and Belgium and France to the south.  It is connected to the Atlantic by the Strait of Dover and the English Channel and opens directly onto the ocean between the Orkney and Shetland islands and between the Shetland Islands and Norway.”

This is important because of the prevailing wind and ocean currents, which strike the British Isles from the southwest.  And so, not only is the North Sea relatively shallow, but it is also sheltered from the worst of the Atlantic currents and the westerly and south-westerly winds.  For decades this has – just – allowed for the safe and profitable recovery of the oil and gas deposits in the area.  Which would not be a problem for the new licensees… except that the deposits they have been given licence to drill are not in the North Sea:The Rosebank and Cambo fields are in the North Atlantic, 80 miles (129km) to the west of Shetland, where raging seas and hurricane-force winds make safe and profitable oil and gas recovery all but impossible.  And that’s before anyone has considered the cost of building the necessary pipelines from the deposits to Shetland and then on to the mainland – most likely running to billions of pounds.

To add to the problems, Cambo and Rosebank are not single reservoirs beneath a convenient cap rock.  Rather, they are small and often unconnected deposits beneath and separated by hard rock formations – making drilling far more difficult.  Nor are they large enough to warrant the kind of investment that is needed.  The entire deposit is no more than 500 million barrels.  And not all of that will be recoverable.  But even if it could be, at today’s prices that would mean a maximum return of £37 billion – not to be sniffed at, but largely eaten away by salaries and infrastructure costs.

Then there are those pesky net zero policies which, despite the bleating of the left, remain in place and have, for many years now, deterred further investment even in the relatively easy fields of the North Sea.  Investing in Cambo and Rosebank would require a guarantee from both government and opposition that the entire net zero project has been abandoned… and that isn’t going to happen.

The truth is that Cambo and Rosebank only ever attract interest on the relatively few occasions when the world oil price rises above $100 per barrel, and when economists – who are invariably wrong – begin predicting the fabled $200 per barrel oil.  This though, misses a fundamental reality about the economy and oil’s place within it.

Oil has not unreasonably been christened “the master resource,” because very little gets done without being made from, transported using, or powered by an oil product.  This means – in economist speak – that oil is inelastic… it cannot easily be replaced by something else.  This, in turn, means that when the price of oil rises, businesses and households must adjust their spending accordingly – switching spending away from discretionary goods and services in favour of the now higher priced essentials.  Nor is this a minor adjustment.  When oil prices spiked in the 1970s, they ushered in a period of stagflation followed by a major depression.  When the same thing happened after the 2005 peak in world conventional oil production, the result was the 2008 crash and the depression which followed it.  And as we have seen most recently, when oil prices rose from 2021, they pulled the rug out from beneath the European economies… a crisis which is still in its infancy.

The point is that rising oil prices cause economic downturns.  And economic downturns lead to less economic activity.  As economic activity declines, so demand for oil falls back – most recently, demand has fallen faster than OPEC+ production cuts.  And as demand falls, so too does the price of oil.  This can take time, of course.  We cannot predict the way in which state and central bank interventions will either hold prices up or – more likely – turn an economic downturn into a full-blown crisis.  Nevertheless, the only way in which we will ever see $200 per barrel oil is via inflation… and we will never see an equivalent to $200 at today’s value.

To return to those drilling licenses, it seems highly unlikely that the government department issuing them doesn’t understand this.  The same goes for the individuals and corporations granted licence to drill… although the politicians are very likely clueless.  So why, given that it is likely that whatever oil and gas there is west of Shetland is going to stay in the ground, should investors have any interest in the licences?

The answer gets to the heart of everything that is wrong with net zero as currently configured.  To achieve net zero in an economy still wholly dependent upon fossil fuels in general and oil in particular requires that someone cease burning fossil fuels to balance those corporations who continue to do so.  But how to compensate those who decide to cease burning fossil fuels?  In two words, carbon credits… what’s not to like?

At face value, carbon credits sound great.  A company can decide to retire its petrol and diesel car fleet and opt instead for electric cars and receive carbon credits for doing so.  Those carbon credits can then be sold to companies which still burn fossil fuels for a nice monetary profit.  But – and there is always a “but” when it comes to the corporatist kleptocracy who dreamed this scheme up – carbon credits aren’t simply granted to companies which give up fossil fuels.  They are also granted to companies which claim to be in a position to burn fossil fuels – or carry out related environmental harms – but promise not to.  And herein we begin to see why a licence to drill wholly unprofitable oil and gas deposits might still be very lucrative.  By promising not to recover those oil and gas deposits – which, remember, are unrecoverable – the licensees can grab 500 million barrels-worth of carbon credits which they can sell to a polluting corporation which can use them to offset its environmental harms.

Just as the right turn a blind eye to the corporate grift in this sordid process, a left which cannot distinguish the problem – environmental harm – from the scam – net zero profiteering – refuses to call out a carbon credit system which does little to reverse industrial damage to the environment, but which allows kleptocrats to get rich behind a very thin veneer of greenwash.

 

As you made it to the end…

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